Summer is the perfect time to step back and take a closer look at your overall family and business situation with a tax tune-up. In my latest YouTube video, the second in our Save taxes, make money from your Muskoka chair series, “Saving taxes with a summer Tax tune-up”, I dive into the recent changes in Canada’s federal budget and what they mean for your bottom line, with my special guest, wife, and fellow real estate investor, Robin Dube. Whether you’re a real estate investor dealing with fluctuating markets or a medical professional navigating the complexities of your practice, this summer is your opportunity to reassess and realign your tax strategies to ensure you’re not leaving money on the table.
Video Transcript: Saving taxes with a summer tax tune-up – Part 2
Robin – Let’s talk about completing a summer tax tune-up.
George – I’m George Dube, saving the world from tax, one bow tie at a time®.
Robin – Now, I know you might all be expecting me to talk about tax, but George has put on a brand new bow tie polka dots just to talk about those summer tax tune-ups. And I’m gonna leave it over to him now.
George – So I’ve chosen the Winston Churchill bow tie ’cause we’re gonna go to war with taxes here.
– Okay, this is
– Important stuff. Looking at the federal budget this year, again, we’ve used the term in the slide very disruptive, but I wanna focus on the idea of trends. This wasn’t a once in a lifetime budget. This wasn’t the first time in Canada that we’ve had some very negative aspects of the federal budget from an income tax perspective. So key to this budget was the capital gains inclusion rate going from 50% to two-thirds, and what that really means behind the scenes. But again, if we look at this trend of different tax topics that have popped up over the budgets, we’re seeing more and more and more focus on wealth redistribution as compared to wealth creation. And yes, it’s written right into the budget documents. It’s not that I’m trying to taint it, it’s already tainted.
– So
– let’s talk a little bit about this inclusion rate change. So again, I’m not trying to pretend that it was a good thing far, far, far from that.
Robin – And a lot of people were freaking out about it. I mean, rightly so.
George – No, no, no question. But on the positive side, what it has done, it has riled up people’s attention perhaps to say again, wait a minute, is my planning adequate? It’s initiated a lot of discussions from a tax planning, investment planning perspective, and, and I’m trying in a lighthearted manner, maybe in some of the conversations to say something to the effect of, maybe you weren’t paying enough attention to me. And I was trying to tell you that is a very, very general number. When the second of mom and dad passes away, you and your spouse roughly speaking, you are going to give away 25% of your net worth to the government,
Robin – Which nobody likes to hear that.
George – It’s, it’s almost unbelievable, right?
Robin – Yeah, exactly.
George – And now that number’s a third. And so if a third of your net worth isn’t worth talking about, and it’s not a third of your net worth today, it’s a third of your net worth when the second of you and your spouse passes away, hopefully that’s a big number. A third, and a third assumes a lot of tax planning has also been introduced to this. I’ve got literally a couple of cases right now that I’m dealing with where they are successfully doing everything wrong in terms of they’re, without getting into all the details, they’re rushing to judgment in the sense of what to do after someone has passed away. They are rushing to judgment with what to do with the investments, business activities. They’re not doing enough planning, they just wanna finish things, get it simple. And what they’re going to do successfully by making it simple, is through a series of very, very unfortunate steps, it’s quite possible they give away more than or approximately 90% of their net worth.
Robin – And that’s
George – Horrifying.
Robin – That seems crazy. But as a business owner myself, like I understand the, the drive to try and make things simple because you’re so busy in all aspects of your business, which is why I guess I appreciate being married to you because you can explain to me in layperson’s terms why sometimes keeping it simple is actually shooting yourself in the foot because that simplicity now, or perceived simplicity now, will cost you thousands, millions of dollars later,
George – Right? And part of the problem is when somebody passes away, they are deemed to have sold all of their assets for fair market value, which kind of in tax language means they’re getting taxed as if they sold everything for real. And generally speaking, when the first spouse passes away, assuming that the wills are written such that everything goes to the surviving spouse as a general comment, tax is not triggered at that point. They wait till the second spouse passes away, which intuitively makes sense and I think is abundantly fair. But if we have the deemed disposition when the second of the spouses passes away and we’ll have clients that are starting to sell assets or take money out of corporations to give to beneficiaries or whatever, let’s keep in mind we’ve got a tax disposition within a corporation or other entity. We have taxes triggered potentially depending on how things are set up, when those assets get out of the corporation to the individual. And if they’re not done properly and it’s not coordinated, we’ve got taxes then when the original person has passed away, taxes in the corporation, taxes to the beneficiaries, and who just won that? Well, obviously Revenue Canada just won that. So it’s not that it’s not possible to do some of those things, but it needs to be planned and it needs to be coordinated. We can’t just keep while we’re alive postponing those decisions or saying the beneficiaries will, they can worry about it if they get anything. It’s better than nothing. And I’m not trying to say what you should or shouldn’t be doing with your estate, but surely if you had the choice of giving money to Revenue Canada, church, Cancer Society, family,
Robin – It’s not a choice. It’s one
George – Clear person that’s never should be selected in that group.
Robin – Yeah, it’s not even a choice really. I mean, Revenue Canada shouldn’t be the, not the top of the list. So it’s, that seems like a bit of a heavy discussion for that Muskoka chair. But I guess I would say like if we’re looking at the things to talk about over the summer or you know, through the year when you need to really sit down and have those discussions about that tax tune up, you can talk about, you can look at things like what has changed with tax rules. And of course that’s when you’re gonna be talking to your accountant. In my case, my husband. You’re gonna be talking about what’s changed with your family. So, you know, have your child, have you had another child? Have you, has one of your children gotten married? Have you gotten married, divorced, separated? There’s lots of things that could be, could be happening there that you need to take into account. Has things changed with your business? So for example, for us, obviously a huge change was me not working any longer full-time in the corporate world and focusing instead on our other aspects of our life. So that was a huge change. We had to have a discussion about that. Have there been changes with their financing? And I know that’s obviously been a huge issue for real estate investors in the last few years, really since the pandemic because there’s been so much up and down. And then as the inflation rate’s gone up and interest rates, I mean, we don’t need to talk in detail about that, but that obviously has made some huge differences with financing ability. And then legal changes. So, and that’s when you call up your lawyer and have some discussions with them as well. I know often people start with the accountant, George, not sure if that you have any advice on that
George – And starting with the accountant, it’s not that it’s necessarily what I would call good or bad. The important thing is to start with somebody, one of the trusted professionals and ensure that they are coordinating with the others and, we’re getting people together and, going back to your comment of perhaps a heavy topic for the Muskoka chair, if you will. I wanna suggest the opposite. And that is, oh my goodness, I, I’ve got a medical practice and, and my loan interest is getting higher and higher. I’ve got some problems here, there and my real estate, my, this, my that, my family, my all the taxes. And it’s overwhelming, but starting to talk with a couple of professionals to get from that, paying a gargantuan amount of tax to something much more reasonable or even less than reasonable if we have some opportunities to really get in there. I think it’s the weight of the world off the shoulders and oh, this is what the Muskoka chair is for. Yeah. And so I think two ways of sitting on that chair, one of addressing the issues and one of, if you will, kind of being that proverbial ostrich and putting our heads in the sand,
Robin – The yeah. And putting your head in the sand won’t make the problem go away. because Revenue Canada is still gonna be there at the end of the day. So having as much information, making as many plans as possible is really like, as you said, gonna help you relax, relax on the beach, relax by the fire, so,
– And relax with loved ones. Right?
George – Exactly. Exactly. I’ve
– Taken care of things for the family, mom and I have done this, dad and I have done that. It a completely different conversation and now it merits the time to be in those Muskoka chairs.
Robin – Exactly. The key message here. Take some action, schedule that tax planning call with your accounting team after you’ve had those conversations on the Muskoka chair and get some plans in place. I know there’s lots of things on the internet to talk about how to save taxes, how to do this. I know George, you’ve got lots of videos on the channel that people can subscribe to. You’ve even talked about like the capital gains changes. You’ve got a video about, hey, it’s not all the end of the world, but there are things that you talk about just with clients. I mean, I have the privilege of being married to you, so I get some of that insider knowledge. But the rest of it you save for your clients.
Robin: Next Up: Make sure you’re with the right people who’s sitting next to you to make sure that you’re successful. And why is this so important now?
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-End transcript-
Resources
For additional resources related to a tax tune-up, see:
- Save taxes, make money: 4 summer projects: Part 1
- Due diligence – Work with the right people: Part 3
- Real estate investors: Tax planning, wealth building
- Medical professionals: Tax and wealth solutions
More questions?
Still have questions on a tax tune-up, or other questions? I want to help you Do Wonderful Things®, so please contact me today.
Remember – circumstances are unique! This information is summary in nature. Seek out advice from your tax advisor about your specific situation.
